What Is a Good Investment?
A good investment is one that is well-suited to an investor’s financial goal, has an acceptable risk level and increases an investor’s net worth. However, an investment that is suitable for one investor might not be ideal for another, so each individual must define their risk tolerance and investment goals.
While there are no guaranteed good investments, knowing how to recognize the traits of a solid investment opportunity and why specific types of investment asset classes can be better than others can help an investor choose. Here are some guidelines new investors can use to determine if an investment might be right for them or not.
What Is a Good Investment?
The traits of a good short-term investment may differ from those of a good long-term investment, depending on an investor’s goals and risk tolerance. Before investing, individuals should consider these traits of suitable investments.
Traits of a Good Short-Term Investment
Short-term investments are best for a financial goal with a time frame of one year or less. Key traits of a good short-term investment include:
- Access to the money within the goal time frame
- A guarantee, or at least likelihood, that the initial investment won’t be lost
- High probability to earn
Traits of a Good Mid-Term Investment
Investments for a one- to five-year goal can allow for a little more risk and hopefully a better yield. A solid mid-term investment will share traits commonly found with good short- and long-term investments.
Traits of a Good Long-Term Investment
Typically, long-term investment goals have a time frame of five years or longer, which allows investors more time to recover from market fluctuations. Good long-term investments:
- Don’t require more money than an investor can afford to lose
- Are fairly valued or undervalued
- Are easy to buy or sell
- Have reasonable fees
Good Investments: Asset Classes To Consider
Good investment opportunities can often be found in stocks, bonds, mutual funds and real estate. Investments such as cryptocurrency and forex are highly speculative, or high risk, and not necessarily good investments for beginner investors.
The following guidelines can help a new investor choose a good stock, bond, mutual fund or real estate investment.
What Makes a Good Stock Investment?
For conservative investors, blue chip stocks are good investments. Blue chips are well-established companies with long-term track records of consistent earnings, such as Apple or McDonald’s. While any stock can be volatile, blue chip stocks typically have reliable earnings and long-term viability.
Investors who prefer stocks that could gain a higher reward might consider growth stocks like Amazon or Starbucks. These stocks carry high valuations but offer significant growth opportunities.
What Makes a Good Bond Investment?
Bonds are low-risk investments intended to generate income. In exchange for principal, a bond issuer promises regular interest payments and the return of the investor’s money at maturity. Hence, an essential characteristic of a good bond is safety in regard to both the income stream and principal.
Many bonds are rated on a scale from AAA to D by outside rating agencies, such as Fitch Ratings. These ratings can give a good indication of the overall credit quality of the bond.
What Makes a Good Mutual Fund Investment?
For many investors, an index fund such as the S&P 500 can be a good investment. The S&P 500 index offers exposure to 500 of America’s largest companies in one package. For other investors, a good mutual fund that is tailored to a particular industry might be a better option. Regardless, it’s essential to find funds that hold stocks that should have reliable growth.
Cost can also play a significant role in picking good mutual funds. Some mutual funds charge expensive upfront fees while others are no-load mutual funds. Some have high expense ratios, while others keep costs low.
What Makes a Good Real Estate Investment?
Real estate investment trusts are one way to invest in real estate without buying properties as an individual. REITs historically have provided long-term returns similar to stocks, and public REITs are easy to buy and sell on the major stock exchanges.
A good investment is one that provides the highest possible return while meeting an individual investor’s acceptable level of risk and financial goal. So when considering what a good investment is, there is no one-size-fits-all answer. An investor must consider their own goals and risk tolerance to determine the right investment balance and the best investment opportunities.
Understanding how to make good investments involves more than just buying safe assets. Any investor must do the proper research and due diligence, whether on their own or with the help of an advisor, to find good investments regardless of the asset class.
FAQHere are some quick answers to common questions about determining good investment opportunities.
- What is considered a good investment?
- A good investment matches an investor's risk level and investment goal. It will also typically have a guaranteed return or a predictable outcome and be easy to buy and sell.
- Where should I invest my money right now?
- Low-risk investments may be a safer place to put money right now, given the volatility of the stock market. Forbes Advisor recommends safer investments, such as money market mutual funds, corporate bonds, fixed annuities, preferred stocks and treasury notes, bills and bonds.
- What is a good investment for making money fast?
- Short-term certificates of deposit, short-term bonds and high-yield savings accounts can be good investments for earning money in a short period.
- Day trading, which involves buying and selling or selling and buying the same security on the same day, can be a fast way to make money. It also comes with significant risk and is not considered a good investment method for most people.
- What kind of investment has the best return?
- Historically, the stock market provides better returns than other types of investments, such as bonds, real estate and treasury bills.
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